09 December 2017

Financial Times: Foreign-owned banks to be hit by US tax rules

Major international banks operating in the US could be disproportionately hit by new tax rules that will penalise the way they have structured their global operations, lobbyists and lawyers have claimed.

Lenders warn that Senate “base erosion” tax plans being discussed by lawmakers will penalise foreign-owned banks that make interest payments within their corporate groups. They complain that the regime will ultimately impose a tax penalty on lenders in part because they are complying with regulatory obligations in the US.

In a letter, the Institute of International Bankers, issued lawmakers an “urgent” request to amend the provision, warning that in its current form it would force banks to reduce lending or restructure their US operations.

The IIB’s members include BNP Paribas, Credit Suisse, Deutsche Bank and UBS and it says its members provide about one-third of all US business loans and hold approximately 20 per cent of all US banking assets.

The problem for banks has arisen because of efforts by US lawmakers to reduce international companies’ ability to drive down their tax bills by funnelling tax-deductible payments out of the US to other entities within their corporate group.

Sarah Miller, IIB’s chief executive, said in the letter to Kevin Brady, the chairman of the House Ways and Means Committee, that the bill had clear “flaws”, arguing that anti-abuse provisions wrongly included payments between foreign banks and their US affiliates.

“It will impose double taxation on payments by US affiliates of international banks,” she wrote. “It will force international banks to pay a US tax penalty for complying with their US regulatory obligations.”

The key concern centres on the Senate “base erosion and anti-abuse” (BEAT) element of the proposed international tax rules, rather than the drafting in the House version of the legislation.

Full article on Financial Times (subscription required)

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